China: Potential for a Meaningful Rally

In the case of Shanghai Stock Exchange Index, there is a convergence of key technical criteria that suggests that a meaningful rally is near.

I was unable to locate any seasonality charts for the Shanghai Stock Exchange Index, but the seasonality chart for the Hang Seng (INDEXHANGSENG:HSI) is very bullish into the end of the year.

Stacking The Probabilities

Positive Divergence: The monthly and weekly charts of the Shanghai Stock Exchange Index show a positive divergence between price and RS.

Trend Deviation: The index has declined to the 200-month SMA which indicates an extreme deviation in the bear market trend. Likewise, the weekly chart is showing the widest deviation from the 200-week SMA since mid-2010.

Seasonality: On the margin, the seasonality chart for the Hang Seng points to strong gains into the end of the year.

As traders/investors we seek to stack as many probabilities in our favor prior to the allocation of capital. In the case of Shanghai Stock Exchange Index, there is a convergence of key technical criteria that suggests that a meaningful rally is near. I anticipate a rally of 25-30% in the coming weeks/months.